Weekly outlook: Ocado at risk of relegation to FTSE 250

Key events for UK wealth managers for the week starting 29 May

Monday 29 May

  • – UK bank holiday

Tuesday 30 May

  • – First-half results from Hollywood Bowl and Greencore
  • – Nationwide UK house price survey
  • – US Case-Shiller house price index
  • – US Conference Board consumer confidence survey
  • – In the US, quarterly results from HP Inc and HP Enterprises

Wednesday 31 May

  • – Full-year results from Bloomsbury Publishing
  • – Trading statement from Bodycote
  • – FTSE All-Share Index Review

Index provider FTSE Russell will announce changes to its large-cap FTSE 100 and mid-cap FTSE 250 indices on Wednesday.

In the quarterly rebalance, a company must climb into the top 90 largest firms by market capitalisation to be admitted into the FTSE 100 index.

Meanwhile, FTSE 100 companies falling below 110th place face relegation to the FTSE 25o.

Etoro global market strategist Ben Laidler said: “The stock most vulnerable to relegation down to the mid cap FTSE 250 is online grocer Ocado. Its share price has slumped 33% this year making it the FTSE 100’s worst performer, and cutting its market capitalisation to only £4.2bn. Mike Ashley’s Frasers Group, the Sports Direct to House of Fraser retail empire is also in the relegation zone, teetering on the 110th ranking tipping point.

“The promotion race to the FTSE 100 big leagues is led by Birmingham-based engineering stock IMI which has soared 23% this year. This has taken its market capitalisation to £5.1bn and 90th place. Close behind is generic drugs maker Hikma Pharmaceutical (HIK.L), whose share price is up 19% this year, and is bidding for a return to the FTSE 100 after its September 2022 relegation.”

See also: Portfolio Adviser magazine May 2023

Susannah Streeter, head of money and markets at Hargreaves Lansdown, added: ‘’Shopping basket sizes have been shrinking at Ocado and the retail side of the business can’t benefit from the surge in demand to shop in bricks and mortar stores once more.

“But the falling share price also demonstrates that investors are losing patience with Ocado Solutions, which is meant to be the long-term powerhouse of the company. Demand for robotic technology for warehouses remains weaker than hoped, with fewer deals than expected coming through.”

The rebalance could lead to significant changes for index funds investors. Laidler explained: “Changes to big indices like the FTSE 100 have become more important as the money tracking them has surged. The amount invested in global exchange traded funds (ETF’s) has quintupled to $9.7trn (£7.8trn) in the past decade. This adds insult to injury for those relegated, as these index tracker funds are forced to sell whilst it gives a further boost to those stocks promoted, as these funds have to buy.”

  • – Chinese purchasing managers’ indices (PMIs) for manufacturing and services
  • – US Job Openings and Labour Turnover Survey

Also on Wednesday, the first of three days of significant US economic data releases will take place in the form of the Job Openings and Labour Turnover Survey (Jolts). The last reading showed 9.6 million job vacancies, down from the 11.6 million recorded in spring 2022.

The release will be followed by the Challenger, Gray and Christmas job cuts survey, the ADP payrolls report and the weekly unemployment claims data on Thursday. The week finishes with the US non-farms payrolls data on Friday.

AJ Bell investment director Russ Mould and head of financial analysis Danni Hewson commented: “Even though the US Federal Reserve has taken the headline Fed Funds interest rate from 0.25% to 5.25% in the fastest sequence of increases on record, the American jobs market still seems to be running hot.

“This may be of concern to policymakers, as meaty wage increases could potentially create a cycle of higher pay, higher prices, higher pay and higher prices and make it harder for the central bank to drag inflation back toward its 2% target, especially as the inflation readings for services and the core measure, which excludes food and fuel, are both looking sticky.

“This raises the importance of the usually early-month run of jobs data from the US, when vacancies, unemployment claims, job cuts, new posts created and pay will all be under the microscope.”

  • – European Central Bank Financial Stability Review
  • – US Federal Reserve Beige Book
  • – In the US, quarterly results from Salesforce and Nordstrom

Thursday 1 June

  • – Full-year results from Pennon and Dr. Martens
  • – Manufacturing purchasing managers’ indices (PMIs) from Japan, Asia, the UK, EU and US
  • – UK mortgage approvals
  • – EU inflation
  • – US car sales
  • – US oil inventories
  • – In Europe, quarterly results from Remy Cointreau
  • – In the US, quarterly results from Broadcom, VMWare, Dollar General, Dell, Hormel Foods and Macy’s

Friday 2 June

  • – US non-farms payrolls data


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